Which Policies Against Inflation After Covid-19 and the War in Ukraine: The Italian Case

ABSTRACT

The aftermath of the pandemic crisis and the war in Ukraine have revived the debate on the causes and consequences of inflation, as well as the policies needed to combat its effects. Despite the obvious absence of a role for monetary policy in triggering price rises, the response of monetary authorities, especially in the Eurozone, has been conventional: raising interest rates, with negative consequences for activity levels. In this paper we argue that the inflation episode we are witnessing is a consequence of the attempt by profit-makers to maintain the same (if not higher) levels of profitability as before. It is, therefore, a case of conflict inflation. The policies needed to avoid severe consequences for the weakest sections of the population should be aimed at compensating workers against the loss of purchasing power. In this context, Italy is a case study. It is one of the few advanced countries where there is no statutory minimum wage. Considering data from the main studies on the conditions of Italian workers and building our argument on the most recent economic theory, we stress the need for the introduction of a legal minimum wage in Italy and, in general, for upstream redistribution policies.

KEYWORDS:

• Inflation
• Italy
• minimum wage

JEL CODES:

• E31
• J31
• O52

Acknowledgements

(LS) This article was developed within the project funded by Next Generation EU — ‘GRINS — Growing Resilient, INclusive and Sustainable’ project (PE0000018), National Recovery and Resilience Plan (NRRP) — EP9 — Mission 4, C2, Intervention 1.3. The views and opinions expressed are only those of the authors and do not necessarily reflect those of the European Union or the European Commission. Neither the European Union nor the European Commission can be held responsible for them (LS and PT) The authors would like to thank the two anonymous referees who kindly reviewed the earlier version of this manuscript and provided valuable suggestions and comments.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 It should be emphasized that above a certain level of inflation, the NAIRU reappears in Rowthorn's model. In this case, expectations are fully met, but wage agreements take into full consideration future inflation. In other words, here inflation plays no role in determining distribution and, therefore, cannot be seen as genuine conflict-driven inflation.

2 https://twitter.com/ojblanchard1/status/1608967176232525824.

3 https://twitter.com/ojblanchard1/status/1608967186856701953.

4 These data were retrieved from the Eurostat website, in the "Statistics explained" section, page ‘Minimum wage statistics’ on September 18, 2023. URL of the page: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Minimum_wage_statistics.

5 See https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Minimum_wage_statistics#Minimum_wages_expressed_in_purchasing_power_standards for updated data. Data retrieved 13 Nov, 2023.

6 These estimates are taken from the 19th INPS (INPS 2021, p. 242).